Concealed charges are morally bankrupt, argues fund manager and campaigner Gina Miller
This has been a spring of springs – be it the shareholder spring or the remuneration spring – and it follows the huge Middle East democracy springs of last year. But there needs to be another challenge to the status quo and that is within the UK savings and investment industry.
This well-established, powerful, self-interested industry has completely forgotten the human face of what it does,l and actually exploits the very people who are behaving responsibly and prudently by saving and investing to look after themselves and their family’s futures.
The industry operates as masters of opaqueness and has completely forgotten the reliance and trust that they regularly abuse.
They are morally bankrupt and appear determined to carry on their questionable practices that offer consumer investing in capital markets little practical consumer protection.
As far as I’m concerned the following facts speak for themselves:
a. 68% of managers charge the identical annual management fee (this would be considered a cartel in any other industry).
b. UK funds charge 79% more than US funds.
c. £18.5 billion p.a. of dealing costs is being hidden from investors.*
d. Only 19% of savers and investors are fully aware of what they are being charged.**
e. As much as 50% of costs can be hidden from investors prior to purchase.
f. Investors only get to see the top 10 holdings so do not know where their money is invested.
g. Managers can often lend out 100% of the holdings in client funds – so investors take 100% of the risk and often receive just 60% of the associated stock lending revenue.
h. 83% of investors would like 100% transparency on fees and holdings.**
Investors simply do not understand how much their investments are costing, and as one potential client told me the other day, he knows the legs are being pulled from under him as he’s being fleeced, but he just can’t find the information to prove it.
The industry is increasingly tainted by mistrust and self-interest. The restoration of trust and honesty is paramount not only to investors, but to the City and London itself.
The investment industry cannot afford to be complacent.
Like so many industries it needs to look at itself and justify its existence. But for this to happen would require a near revolution or investor springboard in the culture, as this is such an appalling state of affairs.
The industry has accused me of scaremongering, of exaggerating the truth as all the costs are there – even if it is in 14 different documents, buried on page 114, and only available in the annual report sent through the post one year after purchase. According to the Oxford English dictionary, ‘hidden’ means ‘out of sight’. I would call this out of sight.
I believe that if the industry followed a new code of practise that is true and fair, trust can be restored. But there is no regulatory or commercial incentive for it to do so. Unlike the average UK company making a 12% profit, the average UK fund management company is typically making 30% plus.
Consumers therefore need to unite to overcome the inertia the industry relies on in order to continue peddling their dubious wares.
I am not going to apologise for using tough language throughout the True and Fair Campaign that SCM Private launched in February this year – even the FSA produced a report in 2000 expressing their concerns about the lack of transparency and consumer protection in the industry. Yet 12 years on, and the industry has changed precious little.
Transparency was never an issue when markets went up 15%+ year on year, and the internet did not exist. Now the entire financial sector is under public scrutiny and we need to change, not bury our heads in the sand and hope these issues magically go away. Trust is dissipating, fast.
We need everyone to become engaged in order to effect change.
Gina Miller is a founding partner at SCM Private
* SCM Private analysis of 2.162 UK unit trusts with total assets under management of £591 billion, utilising Morningstar data as at 23 January 2012
**independent ICM research, Dec 2011, commissioned by SCM Private
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